CIS410-1 Burlington Northern Railroad Electronics System
CIS410-01 Management of Information Systems
Case 1-1 Burlington Northern
Tuesday, January 27, 2015
Annia Martinez
Burlington Northern: The ARES Decision
BN mission statement is to provide transportation services to its customers by offering a more reliable and faster service while reducing cost and increasing revenues by improving the utilization of its assets to stay ahead as the top company in the Railroads industry.
The Problem:
Burlington Northern Railroad is facing the question on whether the implementation of the ARES project will be beneficial and justifiable given its high cost. The ARES project is expected to cost $350 million, which includes three major cost categories, $80 million for the Control Center, another $80 million for the Data ink communication, and $200 million for the On-Board Equipment. ARES which stands for Automated Railroad Electronics System is an automated railroad control system that will help and change significantly how existing operations are planned and controlled …show more content…
in departments like dispatching, mechanical, maintenance-of-way, control systems and communications, freight car management, and information system services. The ARES’s project idea aroused with the purpose to solve BN current problems. These problems included a significant amount of resource waste and lack of coordination among departments. For instance, dispatchers who were responsible for 20-30 trains in their assigned territory most of the times were able to only focus on 5-7 trains, treating the rest of the trains with less attention. In addition, dispatchers were on their own and there was no cooperation among them since they could only see information about their territory and not others. For dispatchers, there was no way to see the whole picture of the current situation, so poor decisions about scheduled maintenance-of-way (MOW) crews were being made. Communications with trains and MOW vehicles was poor, current information about railroad operations were difficult to obtain and sometimes the information was erroneous.
Certainly, ARES will improve operations in BN but the top management specifically the CEO of BN and top management is not completely convinced to carry out the project. ARES is a very large and costly project and they need to be sure that the benefits are realistic. Moreover, they want to make sure that BN will obtain a return after investing $350 million on the project and also there is the question on whether the investment could turn out to be more. Another issue is related with the organizational structure according with the chief operating officer the new technology alone will not benefit the company but the restructuring of the entire company and many operations as well (Cash, p. 25). For all those reasons they want to consider other cheaper alternatives before making this important decision.
Industry Competitive Analysis – Porter’s Five forces
Treat of new Entrants: Given that the railroad industry requires a heavy initial investment the treat of new entrants is low. However, effects of deregulation on both the trucking and railroad industries were changing the competitive environment in transportation (Cash, p. 62). Trucking companies needed a lower initial investment to enter and they were gaining advantage over railroad companies since they were providing door-to-door delivery service which was being preferred by customers in order to meet the just-in-time production.
Treat of Substitutes products: For BN its largest source of revenue was coal (Cash, p. 62), and its major competitor was the Union Pacific (UP), which was another railroad company that had recently invested in a new technology. Heavy commodities like coal and grain would normally be transported by train which put BN in a position where it was difficult for customer to switch but when it comes to transport light products trucks were moving ahead by providing faster service that customers were willing to pay.
Bargaining power of Buyers: The railroad industry had a few companies providing the service to the customers, but it was facing two major challenges which were better service and capital intensity (Cash, p. 68). This was making the trucking industry stronger since customers were looking for a faster service and they were able to provide it.
Bargaining Power of Suppliers: Farmers and other big corporations were BN’s suppliers. For suppliers providing light products like agricultural and food products they had the alternative to switch to the trucking companies, but for the ones providing heavy products like coal and automotive products they didn’t have to much bargaining power since railroad companies were the best way for transporting these.
Industry Rivalry: The number one competitor is the Union Pacific (UP) and they were also investing to be more efficient (Cash, p.4). Certainly, the trucking industry was becoming a strong competitor for BN as well, since the costs in the trucking industry were going down due to the effects of deregulation and they were providing more flexibility for customers.
Generic Strategy
BN currently is following the cost leadership strategy by using economies of scale to transport high volumes of commodities to its customers. Coal was the number one source of revenue and BN had long term contract customers (Cash, p.4). The second largest source of revenue was agricultural commodities and BN was expecting to grow in this segment given recent changes in economic policies in Eastern Europe. To satisfy the expected increase in demand for this type of products BN will need to become even more efficient to keep its cost leadership strategy, maintain its current customers and gain potential new customers in the future.
Organizational Structure
Burlington Northern is structured in a functional form, where similar knowledge, tasks and skills are being grouped together. This is because the functional form promotes economies of scale (Cash, p.35). For instance dispatchers are in charge of controlled the trains and each of them were assigned to a region and they were only responsible for that region. They also schedule maintenance with the MOW crews. Other operations were divided by function as well, such as control systems and communications, maintenance, and freight car management and each of these departments were reporting to the operations manager assigned to that department. The idea behind this form is to create a rational system to operate in as efficient as possible (Morgan, p.22). However, the question was whether after implementing ARES this form would still be suitable; the new system might sugest an organizational structural change.
Stakeholders
Top management: This group has the responsibility of keeping the company running, which means that the BN must continue making profit in order to maximize the company’s value. For this reason they have to make sure that an investment of this magnitude is justifiable and that in the long run will provide the identified benefits.
Employees: This group will be affected directly by the ARES project, the whole business process is going to change and they will have to adapt to the new system. The advantage is that this new system promise to be more efficient and safe which can make their jobs easier but on the other hand some people might lose their job or since ARES is supposed to automate a lot of processes currently being made by them.
Customers: ARES is going to improve the scheduling of trains which ultimately will provide a faster and more reliable service to its customers. However, in order to still be profitable after ARES implementation, BN might increase the price for the service and customers which will affect customers.
Solutions:
One solution for BN could be to implement the entire ARES system in a geographic region first.
With this solution the top management could analyze the benefits in reality before doing a whole implementation of the system which is riskier. Another solution could be to not do any implementation for now and wait and see how other railroad companies adapt to new emerging technologies, by doing this BN would take an adapter position which would still keep them competitive regarding technological development but with less risk. Adaptive companies use information technology at a level close to their competitors (Friedman, p.372). But this solution affects the customers that are demanding faster delivery necessary for the recent trend of JIT manufacturing who might end up switching to trucking companies, which ultimately affects BN because by the time they finally implement a system to improve the delivery to customers, they will have lost a lot of potential
customers.
The best solution and recommendation for BN is to do a whole implementation of ARES despite its high cost. Without a question, the environment is changing and BN must adapt and stop using old technology if they want to continue being in business. BN is a very large company that deals with complex business processes everyday thus in order for them to survive and keep growing they should be aggressive and be the leader in the industry having the most advanced technology. ARES will automate a lot of processes in a more efficient way minimizing human errors which ultimately will reduce labor cost by eliminating unnecessary manpower. ARES will also improve the scheduling of trains which will eradicate the meet and passes problem one of BN’s biggest challenge. Clearly, the poor utilization of BN’s assets (bad scheduling and waste of resources) is creating bottlenecks which is preventing them from making more profit and meet the market demand. One important message revealed in the book “The Goal” is that companies should balance the flow with the demand from the market (Goldratt, p.139). The demand is growing national and is expected to grow more even in the international arena in the future. ARES will optimize the whole system of BN which in the long run will generate high revenues because they will be able to meet the market demand. However, the implementation of ARES will affect the entire company and operations and many organization changes will be required. Companies in order to survive must embrace change and successful adaptation of organization to environment depends on the ability of top management to interpret conditions facing the firm in an appropriate manner to adapt relevant course of action. (Morgan, p. 47). In order to take advantage of all ARES features and benefits BN they should also switch to use a matrix organizational structure. The fully developed matrix is team driven, in that priority is given to business, program, product, or project areas, with functional specialism providing support, where the focus is on end product or service encouraging a flexible, innovative, and adaptive behavior (Morgan, p. 51). Matrix organizational structure is the best choice for a growing and complex company like BN.
References
Cash, J. (1994). Building the information-age organization: Structure, control, and information technologies (3rd ed.). Chicago
Fried, L. (1995). Managing information technology in turbulent times. New York: Wiley.
Goldratt, E., & Cox, J. (1992). The goal: A process of ongoing improvement (2nd rev. ed.). Great Barrington, MA: North River Press.
Morgan, G. (1997). Images of organization (2nd ed.). Thousand Oaks, Calif.: Sage Publications.
Case 1-1 Burlington Northern
Tuesday, January 27, 2015
Annia Martinez
Burlington Northern: The ARES Decision
BN mission statement is to provide transportation services to its customers by offering a more reliable and faster service while reducing cost and increasing revenues by improving the utilization of its assets to stay ahead as the top company in the Railroads industry.
The Problem:
Burlington Northern Railroad is facing the question on whether the implementation of the ARES project will be beneficial and justifiable given its high cost. The ARES project is expected to cost $350 million, which includes three major cost categories, $80 million for the Control Center, another $80 million for the Data ink communication, and $200 million for the On-Board Equipment. ARES which stands for Automated Railroad Electronics System is an automated railroad control system that will help and change significantly how existing operations are planned and controlled …show more content…
in departments like dispatching, mechanical, maintenance-of-way, control systems and communications, freight car management, and information system services. The ARES’s project idea aroused with the purpose to solve BN current problems. These problems included a significant amount of resource waste and lack of coordination among departments. For instance, dispatchers who were responsible for 20-30 trains in their assigned territory most of the times were able to only focus on 5-7 trains, treating the rest of the trains with less attention. In addition, dispatchers were on their own and there was no cooperation among them since they could only see information about their territory and not others. For dispatchers, there was no way to see the whole picture of the current situation, so poor decisions about scheduled maintenance-of-way (MOW) crews were being made. Communications with trains and MOW vehicles was poor, current information about railroad operations were difficult to obtain and sometimes the information was erroneous.
Certainly, ARES will improve operations in BN but the top management specifically the CEO of BN and top management is not completely convinced to carry out the project. ARES is a very large and costly project and they need to be sure that the benefits are realistic. Moreover, they want to make sure that BN will obtain a return after investing $350 million on the project and also there is the question on whether the investment could turn out to be more. Another issue is related with the organizational structure according with the chief operating officer the new technology alone will not benefit the company but the restructuring of the entire company and many operations as well (Cash, p. 25). For all those reasons they want to consider other cheaper alternatives before making this important decision.
Industry Competitive Analysis – Porter’s Five forces
Treat of new Entrants: Given that the railroad industry requires a heavy initial investment the treat of new entrants is low. However, effects of deregulation on both the trucking and railroad industries were changing the competitive environment in transportation (Cash, p. 62). Trucking companies needed a lower initial investment to enter and they were gaining advantage over railroad companies since they were providing door-to-door delivery service which was being preferred by customers in order to meet the just-in-time production.
Treat of Substitutes products: For BN its largest source of revenue was coal (Cash, p. 62), and its major competitor was the Union Pacific (UP), which was another railroad company that had recently invested in a new technology. Heavy commodities like coal and grain would normally be transported by train which put BN in a position where it was difficult for customer to switch but when it comes to transport light products trucks were moving ahead by providing faster service that customers were willing to pay.
Bargaining power of Buyers: The railroad industry had a few companies providing the service to the customers, but it was facing two major challenges which were better service and capital intensity (Cash, p. 68). This was making the trucking industry stronger since customers were looking for a faster service and they were able to provide it.
Bargaining Power of Suppliers: Farmers and other big corporations were BN’s suppliers. For suppliers providing light products like agricultural and food products they had the alternative to switch to the trucking companies, but for the ones providing heavy products like coal and automotive products they didn’t have to much bargaining power since railroad companies were the best way for transporting these.
Industry Rivalry: The number one competitor is the Union Pacific (UP) and they were also investing to be more efficient (Cash, p.4). Certainly, the trucking industry was becoming a strong competitor for BN as well, since the costs in the trucking industry were going down due to the effects of deregulation and they were providing more flexibility for customers.
Generic Strategy
BN currently is following the cost leadership strategy by using economies of scale to transport high volumes of commodities to its customers. Coal was the number one source of revenue and BN had long term contract customers (Cash, p.4). The second largest source of revenue was agricultural commodities and BN was expecting to grow in this segment given recent changes in economic policies in Eastern Europe. To satisfy the expected increase in demand for this type of products BN will need to become even more efficient to keep its cost leadership strategy, maintain its current customers and gain potential new customers in the future.
Organizational Structure
Burlington Northern is structured in a functional form, where similar knowledge, tasks and skills are being grouped together. This is because the functional form promotes economies of scale (Cash, p.35). For instance dispatchers are in charge of controlled the trains and each of them were assigned to a region and they were only responsible for that region. They also schedule maintenance with the MOW crews. Other operations were divided by function as well, such as control systems and communications, maintenance, and freight car management and each of these departments were reporting to the operations manager assigned to that department. The idea behind this form is to create a rational system to operate in as efficient as possible (Morgan, p.22). However, the question was whether after implementing ARES this form would still be suitable; the new system might sugest an organizational structural change.
Stakeholders
Top management: This group has the responsibility of keeping the company running, which means that the BN must continue making profit in order to maximize the company’s value. For this reason they have to make sure that an investment of this magnitude is justifiable and that in the long run will provide the identified benefits.
Employees: This group will be affected directly by the ARES project, the whole business process is going to change and they will have to adapt to the new system. The advantage is that this new system promise to be more efficient and safe which can make their jobs easier but on the other hand some people might lose their job or since ARES is supposed to automate a lot of processes currently being made by them.
Customers: ARES is going to improve the scheduling of trains which ultimately will provide a faster and more reliable service to its customers. However, in order to still be profitable after ARES implementation, BN might increase the price for the service and customers which will affect customers.
Solutions:
One solution for BN could be to implement the entire ARES system in a geographic region first.
With this solution the top management could analyze the benefits in reality before doing a whole implementation of the system which is riskier. Another solution could be to not do any implementation for now and wait and see how other railroad companies adapt to new emerging technologies, by doing this BN would take an adapter position which would still keep them competitive regarding technological development but with less risk. Adaptive companies use information technology at a level close to their competitors (Friedman, p.372). But this solution affects the customers that are demanding faster delivery necessary for the recent trend of JIT manufacturing who might end up switching to trucking companies, which ultimately affects BN because by the time they finally implement a system to improve the delivery to customers, they will have lost a lot of potential
customers.
The best solution and recommendation for BN is to do a whole implementation of ARES despite its high cost. Without a question, the environment is changing and BN must adapt and stop using old technology if they want to continue being in business. BN is a very large company that deals with complex business processes everyday thus in order for them to survive and keep growing they should be aggressive and be the leader in the industry having the most advanced technology. ARES will automate a lot of processes in a more efficient way minimizing human errors which ultimately will reduce labor cost by eliminating unnecessary manpower. ARES will also improve the scheduling of trains which will eradicate the meet and passes problem one of BN’s biggest challenge. Clearly, the poor utilization of BN’s assets (bad scheduling and waste of resources) is creating bottlenecks which is preventing them from making more profit and meet the market demand. One important message revealed in the book “The Goal” is that companies should balance the flow with the demand from the market (Goldratt, p.139). The demand is growing national and is expected to grow more even in the international arena in the future. ARES will optimize the whole system of BN which in the long run will generate high revenues because they will be able to meet the market demand. However, the implementation of ARES will affect the entire company and operations and many organization changes will be required. Companies in order to survive must embrace change and successful adaptation of organization to environment depends on the ability of top management to interpret conditions facing the firm in an appropriate manner to adapt relevant course of action. (Morgan, p. 47). In order to take advantage of all ARES features and benefits BN they should also switch to use a matrix organizational structure. The fully developed matrix is team driven, in that priority is given to business, program, product, or project areas, with functional specialism providing support, where the focus is on end product or service encouraging a flexible, innovative, and adaptive behavior (Morgan, p. 51). Matrix organizational structure is the best choice for a growing and complex company like BN.
References
Cash, J. (1994). Building the information-age organization: Structure, control, and information technologies (3rd ed.). Chicago
Fried, L. (1995). Managing information technology in turbulent times. New York: Wiley.
Goldratt, E., & Cox, J. (1992). The goal: A process of ongoing improvement (2nd rev. ed.). Great Barrington, MA: North River Press.
Morgan, G. (1997). Images of organization (2nd ed.). Thousand Oaks, Calif.: Sage Publications.